October 7, 2019 By SmartBiz Team

Human resources, or HR, serves both the company and its potential employees. For the new hire, this is where you can receive all the information you need to know about your employer and continue to develop within the organization as well as maintain your safety and wellness. For the small business owner, HR is critical to your company because it allows you to hire and retain top performers while staying compliant with the law.

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What is Human Resource Management?

HR is used in business to describe the people who work at a company or organization as well as the department that manages those resources, whether that be through hiring and training employees, creating a healthy work environment, or overseeing payroll, benefits, and other compensation.

Human Resource Management (HRM) has to do with all things people. That means striking the right balance between serving the employees’ and the company’s needs, all while complying with federal and state government laws and regulations.

Why does HR matter for small business?

Employees are the driving force of business, from the smallest establishments to the largest corporations. Even for a small company, engaging employees in meaningful work can enhance performance, loyalty, and retention.

At the end of the day, the HR department helps the company achieve its mission by maximizing positivity in the workplace, making the most of available resources, and creating a more efficient spending model.

With the right HRM policies and best practices, you can help employees continue to grow and give back to the company with their experience and knowledge. You’ll also align the team on your business goals and develop techniques together to stand out from the crowd. As the company expands, strong human resource management means that employees are a good fit from the start and are motivated to meet their job requirements.

1. Financial documentation

Before you start the hiring process, it’s important to have all your documentation requirements checked off so you’re well prepared. First thing’s first: your EIN (employer identification number). This unique nine-digit ID functions like a Social Security number for your business and will be important for your tax returns and other IRS-related documents. To get an EIN, head to the IRS website and submit the online application.

You’ll also have state-specific requirements through the labor department. Visit your local Department of Labor website to find out about the requirements, the process, and the steps you need to take.

Next, it’s time to ensure that your tax filings are set up correctly. Before you start your employee search, you should take care of three different types of tax withholding documents in advance:

  • Federal income tax withholding (Form W-4): When a new employee starts, they need to fill out Form W-4 (Employee’s Withholding Certificate), which allows them to decide how much federal income tax to withhold from their pay. You’re responsible for submitting that form to the IRS. For more details on Form W-4, the IRS breaks down key information you need to know.
  • Federal wage and tax statement (Form W-2): For every employee you hire, you’re responsible for completing Form W-2, which breaks down their earnings and withheld taxes for the year. Then, you should send one copy to each employee by January 31st that covers the previous year and another to the Social Security Administration by the end of February. Head to the IRS website to learn more about Form W-2.
  • State taxes: Tax withholding isn’t just limited to the federal government—many states require their own forms as well. Find yours on the Bureau of Labor Statistics website.

Have specific questions about the federal tax filing process, like what forms to submit if you’re hiring an independent contractor or how to provide expense reimbursements? The IRS has a complete guide with everything you need to know.

While filing taxes and after they’re completed, make sure to keep all your relevant financial records as organized as possible. With a solid system in place, you’ll be able to monitor your company’s growth over time, become more efficient with your documentation processes, and keep track of different questions as they arise.

Not sure where to start? Check out our tips on the SmartBiz Small Business Blog! You’ll learn best practices and key situations to avoid—Small Business Finances: Dos and Don’ts.

2. Compliance

Compliance-related practices can help protect you and your business in the long run, so they should be top of mind from early in the hiring process.

Once you’ve sent offers out to your potential employees, you can consider running a background check, which is authorized by the candidate as part of the job application process. The pre-employment screening is an important step that can help protect you, your business, and your customers.

Don’t forget that running background checks involves complex legal requirements that can depend on your specific state. If you’re not the expert on the compliance regulations, it might be worthwhile to hire an external agency specializing in background checks.

After you’ve completed the screening, there are usually strict regulations on how to use that information. We recommend working with a legal professional especially as you learn about the various rules surrounding the hiring process.

As the business owner, it’s on you to ensure that all your employees are eligible to work in the U.S. Otherwise, you can face serious legal consequences and fines. To stay compliant with employment regulations, make sure you have these steps taken care of:

  • Form I-9: Before or on the first day, new hires should fill out section one of Form I-9, which includes information like their Social Security number, their contact information, and their employment eligibility.
  • Supporting documentation (Form I-9): By their third day of work, they should have shown you valid personal documents, including their identification and employment authorization. This can be a combination of various documents, such as a U.S. passport, a driver’s license, and a Social Security card. For the complete list of acceptable documents for Form I-9, head to the U.S. Citizenship and Immigration Services website.
  • E-Verify: Depending on your location and business, you might be required to enroll in the E-Verify program in addition to completing Form I-9. More details can be found on the E-Verify website.

The federal government doesn’t require employers to submit Form I-9, but you do need to retain the file in your system for three years after the hire date, or for a year after the employee leaves the company, whichever comes later.

3. Employee files and handbook

In addition to Form I-9, you should also keep and consolidate these two critical pieces of information for each employee.

  • Employee general file: This file is primarily for your own use. It should contain all the relevant documents that have to do with the employee’s time at your company, from the application and resume to performance reviews, training verification, W-4 forms, compensation and benefits package details, and anything in between.
  • Employee medical file: This should include any disability information, medical records, and other documentation related to the employee. Keep in mind that this is highly confidential information, so it should be held separate from other files and kept secure.

In addition to files and forms, all business should have an employee handbook. This document gives your employees an idea of expectations, requirements, and best practices. If any issues arise, they can always refer back to the handbook to see how to deal with them. To name just a few, your handbook should include your organization’s mission, values, and goals, its code of conduct, anti-discrimination policy, non-disclosure agreement, safety and security policies, compensation and benefits, work schedules (including how to track time, take vacation, and notify of leave), and general information besides legal requirements. Make sure that each employee has a copy, reads, it, and signs a statement acknowledging that they have. Then, keep those statements in your employee files and make a copy easily accessible to the whole team, whether that be in print or digitally.


3. Recruitment and hiring

Ready to start looking for the right candidate? It can help to take a step back and ask yourself what you’re really searching for. What are the key tasks you need help with, what qualities do you value most, and where could you use some additional support? Crafting a job description that covers not only the general overview but some details like daily projects can help you narrow down exactly what your business needs to succeed.

Next, decide on the role’s official title, seniority, pay, and level of impact on the company as a whole. With those key characteristics in mind, you can start targeting by demographics—will you attend a local college’s career fair or reach out to industry professionals with years of experience under their belts? Understanding what backgrounds and skillsets would be most beneficial to your company can help you conduct a fair, thoughtful interview process.

It’s time to hire! That means starting a thorough search for the best fit for your business. One of the most reliable and trusted ways to begin the process is through referrals. Can your connections create the link to the candidate you’re looking for? Not only will you save time, but you’ll have the support of your closest partners as you make your decisions.

At the same time, it’s important to build a qualified, diverse workplace from the ground up. That means casting a wide net, especially as you’re just starting to expand your team. Create profiles on websites like LinkedIn, Indeed, and Glassdoor to establish credibility and capture the attention of the top candidates for your role.

If you’re committed to diversifying your workplace, include a statement at the bottom of your job postings identifying your business as an Equal Opportunity Employer to show that you pledge to create a welcoming environment for all candidates of all ethnicities, gender identities, races, sexual orientations, ages, religions, to name a few. In addition, be sure to encourage those with disabilities to submit their job applications as well.

Have your top picks in mind? Now it’s time to reach out and schedule interviews with each. Consider your interview process for the various roles you have available. First, think about the logistics: how many rounds should the candidate go through, what kinds of questions should they answer? You should create a balanced mix of topics between personality-based and technical or skill-based questions. That way, you can get an idea of their expertise and whether or not they’d fit within the company culture.

For your first employees, you’d probably be one of few interviewers, if not the only one. As the hiring manager, key qualities to look out for are ones that point to potential: enthusiasm, passion, and interest matched with strong performance in previous work. Some candidates might have impressive resumes filled with years of achievement, but focus on those who you can picture growing at your company right from the start.

5. Payroll and benefits

Payroll processing and benefits are another responsibility of the HR team. Payroll can get complicated, which is why there are a variety of tools available to you. Check out our top picks specifically for small business owners: 7 Best Payroll Tools for Small Business.

Benefits are a key component when it comes to bringing in employees and keeping them on board. While some are required to be in place, others are a great addition to offer to your employees.

Required employee benefits include:

  • Social Security taxes
  • Workers’ compensation insurance
  • Disability insurance
  • Leave benefits
  • Unemployment insurance

Optional employee benefits are up to your discretion but can be a great way to attract and retain employees. Some examples include health benefits, an employer-sponsored retirement plan like a 401k, or a commuter benefits plan.

6. Onboarding

Onboarding is all about creating a smooth transition for your new employees as they get acquainted with your company and culture. That means giving them the tools and resources they need to thrive. Even though you might think of the process as lasting for a few weeks, it can actually continue up to a year after the employee’s start date with regular check-ins and reviews to make sure that the new hire is turning into a significant asset to your company in the long term.

As the new hire learns about your company as well as the products and services it offers, continue to provide feedback, education, and key information that they’ll need to grow in their roles.

Looking for new ways to boost employee retention? Check out our 10 Valuable Human Resources Best Practices on the Small Business Blog. You’ll find out what it takes to create a healthy, positive, and diverse environment at your company.

7. Performance, development, and maintenance

With a team on board, don’t forget to continue building and boosting morale as your company grows. Do you host team events, provide coffee and snacks, participate in corporate membership programs, or offer stock options? All of these give your employees additional perks to look forward to, and prospective hires an attractive view of your company culture.

Looking for original ideas to kickstart your incentive programs? Check out our tips on the Small Business Blog—Another Day Another Dollar: 4 Tips For Making Work More Enjoyable For Your Employees. You’ll see what it takes to build a healthy work environment, full of meaningful friendships and positive connections.